Pr. Commissioner Of Income Tax , Jaipur-Ii, Jaipur v. M/S. Anamika Conductors Ltd. , B

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 125/2018 Pr. Commissioner Of Income Tax , Jaipur-Ii, Jaipur. ----Appellant Versus M/s. Anamika Conductors Ltd. , B-129, Rajendra Marg, BapuNagar, Jaipur ----Respondent For Appellant(s) : Mr. Prateek Kedawat for Mr. R.B. MathurFor Respondent(s): HON'BLE MR. JUSTICE KALPESH SATYENDRA JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS 10/07/2018 Judgment By way of this appeal, the appellant has challenged thejudgment and order of the Tribunal whereby the Tribunal hasdismissed the appeal of the department and allowed the crossobjection filed by the assessee. Counsel for the appellant has framed following substantialquestions of law:- “i) Whether on the facts and in the circumstances ofthe case in law, the ITAT was justified in upholdingthe deletion of addition made by the AO by way ofdisallowance of depreciation claimed on wind mill forRs. 29,68,289/- by holding that depreciation @ 80%has to be allowed on complete wind mill withoutsegregating investment on building part and onelectric item. Moreso when depreciation @ 80% isallowable only on wind mill plant not on the otherelectrical fitting and construction etc.” ii) Whether on the facts and in the circumstances ofthe case and in law, the ITAT was justified inupholding the order of CIT(A) in respect ofdisallowance u/s 40(a)(ia) of Rs. 27,94,439/-without appreciating the fact that the second provisoto this section was inserted w.e.f. 01.04.2013 and isapplicable in relation to the AY 2013-14 andsubsequent years. iii) Whether on the facts and in the circumstances ofthe case and in law, the ITAT was justified inupholding the deletion of disallowance of Rs.21,250/- made by Assessing Officer for depositingthe employees’ contribution to PF & ESI beyond theprescribed time limit provided in respective Acts. iv) Whether on the facts and in the circumstances ofthe case and in law, the ITAT was justified in holdingthat employees’ contribution to PF & ESI aregoverned by the provision of section 43B and not bysection 36(1) (va) r.w.s. 2 (24) (x) of the IT Act. v) Whether on the facts in the circumstances of thecase and in law, the ITAT was justified in deleting thedisallowance made u/s 14A, without appreciating thefact that the Assessing Officer made disallowance asper provision of section 14A (2)/14A(3).” Counsel for the appellant has taken us to the order of AOwherein it has been observed as under:- “6.1. As is evident from the balance sheet of theassessee, the assesse has made investments inequity shares earning exempted income u/s 10 ofthe Income Tax Act 1961. Thus, the assessee isliable for disallowance u/s 14A in light of the CBDTclarificatory Circular No. 5 dated 11.02.2014 whereinit has been held in Para 6 that:- “Thus, in light of the above, Central Board of DirectTaxes, in exercise of its powers under section 119 ofthe Act hereby clarifies that Rule 8D read withsection 14A of the Act provides for disallowance ofthe expenditure even where taxpayer in a particularyear has not earned any exempt income.” 6.3. The invocation of section 14A is automatic andcomes into operation without any exception as soonas dividend income is claimed exempt. Thepossibility of incurring certain expensiture under thehead administrative expenditure for earning dividendincome cannot be ruled out. While allocatingexpenses relating to exempt income not only thedirect expenses like receiving and depositing thedividend warrant has to be taken into consideration “Thus, in light of the above, Central Board of DirectTaxes, in exercise of its powers under section 119 ofthe Act hereby clarifies that Rule 8D read withsection 14A of the Act provides for disallowance ofthe expenditure even where taxpayer in a particularyear has not earned any exempt income.” 6.3. The invocation of section 14A is automatic andcomes into operation without any exception as soonas dividend income is claimed exempt. Thepossibility of incurring certain expensiture under thehead administrative expenditure for earning dividendincome cannot be ruled out. While allocatingexpenses relating to exempt income not only thedirect expenses like receiving and depositing thedividend warrant has to be taken into consideration but also the indirect expenses including majormanagerial/clerical expenses which are involved inmaking and implementing the decision are also to bedisallowed. The disallowance of administrativeexpenses and interest expenses on earning ofdividend income claimed exempt is alsoheld/permitted by the Hon’ble Supreme Court in thecase of CIT vs. United General Trust, 200 ITR 488(SC).” Taking into consideration that the question no. 1 & 2 are covered by the decision of this Court, the appeal qua question no.1 and 2 stands dismissed. Regarding question no.3 & 4, this Courthas already taken a view which is subject matter of SLP being no.14857/2014 (CIT, Jaipur vs. M/s State Bank of Bikaner & Jaipur),therefore, these questions are decided subject to decision of SLP. The question no. 5 is now covered by the decision ofSupreme Court in the case of Godrej and Boyce ManufacturingCompany Ltd. vs. Deputy Commissioner of Income Tax & Ors;reported in (2017) 394 ITR 449 (SC). Though counsel for the appellant has relied upon theobservations made in para 34 of the aforesaid judgment, however,in view of the observations made by the Supreme Court in para 36& 37 which reads as under:- “36. Section14A as originally enacted by the FinanceAct of 2001 with effect from 1.4.1962 is in the sameform and language as currently appearing in Sub-section (1) of Section14A of the Act. Sections14A(2) and (3) of the Act were introduced by the FinanceAct of 2006 with effect from 1.4.2007. The finding ofthe Bombay High Court in the impugned order thatSub-sections (2) and (3) of Section14A isretrospective has been challenged by the Revenue inanother appeal which is presently pending before thisCourt. The said question, therefore, need not andcannot be gone into. Nevertheless, irrespective of theaforesaid question, what cannot be denied is that therequirement for attracting the provisions ofSection14A(1)of the Act is proof of the fact that theexpenditure sought to be disallowed/deducted hadactually been incurred in earning the dividend income.Insofar as the Appellant-Assessee is concerned, theissues stand concluded in its favour in respect of theAssessment Years 1998-1999, 1999-2000 and 2001- 2002. Earlier to the introduction of Sub-sections (2)and (3) of Section14Aof the Act, such adetermination was required to be made by theAssessing Officer in his best judgment. In all theaforesaid assessment years referred to above it washeld that the Revenue had failed to establish anynexus between the expenditure disallowed and theearning of the dividend income in question. In theappeals arising out of the assessments made for someof the assessment years the aforesaid question wasspecifically looked into from the standpoint of therequirements of the provisions of Sub-sections (2) and(3) of Section14Aof the Act which had by then beenbrought into force. It is on such consideration thatfindings have been recorded that the expenditure inquestion bore no relation to the earning of the dividendincome and hence the Assessee was entitled to thebenefit of full exemption claimed on account ofdividend income. 37. We do not see how in the aforesaid fact situation adifferent view could have been taken for theAssessment Year 2002-2003. Sub-sections (2) and (3)of Section14A of the Act read with Rule 8D of the Rulesmerely prescribe a formula for determination ofexpenditure incurred in relation to income which doesnot form part of the total income under the Act in asituation where the Assessing Officer is not satisfiedwith the claim of the Assessee. Whether suchdetermination is to be made on application of theformula prescribed under Rule 8D or in the bestjudgment of the Assessing Officer, what the lawpostulates is the requirement of a satisfaction in theAssessing Officer that having regard to the accounts ofthe Assessee, as placed before him, it is not possible togenerate the requisite satisfaction with regard to thecorrectness of the claim of the Assessee. It is onlythereafter that the provisions of Section14A(2)and (3)read with Rule 8D of the Rules or a best judgmentdetermination, as earlier prevailing, would becomeapplicable.”different view could have been taken for theAssessment Year 2002-2003. Sub-sections (2) and (3)of Section14A of the Act read with Rule 8D of the Rulesmerely prescribe a formula for determination ofexpenditure incurred in relation to income which doesnot form part of the total income under the Act in asituation where the Assessing Officer is not satisfiedwith the claim of the Assessee. Whether suchdetermination is to be made on application of theformula prescribed under Rule 8D or in the bestjudgment of the Assessing Officer, what the lawpostulates is the requirement of a satisfaction in theAssessing Officer that having regard to the accounts ofthe Assessee, as placed before him, it is not possible togenerate the requisite satisfaction with regard to thecorrectness of the claim of the Assessee. It is onlythereafter that the provisions of Section14A(2)and (3)read with Rule 8D of the Rules or a best judgmentdetermination, as earlier prevailing, would becomeapplicable.” In view of the above, no substantial question of law arises in the appeal, the issue is answered in favour of the assessee against the department. The same stands dismissed. (VIJAY KUMAR VYAS),J (K.S.JHAVERI),J A.Sharma/5